Lacking clear American leadership, the global trade agenda is floundering
ROBERTO AZEVEDO, the head of the World Trade Organisation (WTO), is not the architect of grand global trade deals that his title suggests. Sitting in his Geneva headquarters, he remembers only too well how the WTO’s Doha round collapsed under the weight of its own ambition. “Let’s do the trade deals that are in reach,” he says. Overambition is not the only problem. “Anti-trade rhetoric is catchy,” sighs Mr Azevedo. So catchy that it has infected deals beyond the WTO. The world’s most trumpeted regional trade deals are drifting out of grasp just when pep is most needed: on September 27th the WTO forecast that for the first time in 15 years, global trade growth this year, at just 1.7%, would not keep pace with global GDP.
The Trans-Pacific Partnership (TPP), a deal between America, Japan and ten other countries around the Pacific, was signed in February but is now faltering. On September 26th Hillary Clinton and Donald Trump, the Democratic and Republican nominees for the American presidency, fought to distance themselves from it in their first televised presidential debate. Mr Trump labelled the deal “almost as bad as NAFTA” (the North American Free Trade Agreement, which came into force in 1994 and which he sees as the worst thing ever to happen to American manufacturing).
The TPP is deeply controversial among the minority of Americans who have heard of it (a recent poll found that only 29% had, and most of them were unaware it excludes China).
Nevertheless, Barack Obama wants to push it through in the “lame-duck” session of Congress at the end of this year. There he faces a mixture of poisonous partisan politics and genuine concerns over the deal. Many Republicans would relish thwarting an important part of Mr Obama’s legacy. Winning the Democratic votes he needs would be a stretch.
The EU is also choking on its own processes when it comes to trade deals. After a recent bout of energetic protests against the Comprehensive Economic and Trade Agreement (CETA), a trade deal between the EU and Canada, an informal meeting of European trade ministers in Bratislava on September 23rd gave it the green light. But it could yet be undermined by any one EU member that refuses to ratify. The Austrians look particularly reluctant.
If CETA is fragile, the Transatlantic Trade and Investment Partnership (TTIP), a deal still being hammered out between the EU and America, is flailing. Negotiations have proceeded at a snail’s pace. Britain’s vote to leave weakens the EU’s clout and makes the Americans even less amenable to meeting European concerns. Looming French and German elections have made protests against it harder to ignore. In Bratislava the ministers grudgingly agreed to continue talks. If the deal is not done by the time the next president is inaugurated, “there will be a natural pause,” says Cecilia Malmstrom, the EU’s trade commissioner. A revival would not be imminent.
A nasty brew of opportunistic politicking and sceptical (and often misinformed) electorates is largely to blame for this halting progress. But there are other reasons why trade liberalisation is getting harder. TPP reduces some bilateral tariffs and quotas, such as those covering America’s imports of cars and Japan’s of beef. But since the deal includes the other NAFTA members (Canada and Mexico) and four other countries with which America already has bilateral free-trade agreements, most of it focuses on “behind the border” non-tariff barriers: ie, on harmonising regulations, removing privileges for state-owned enterprises, protecting intellectual property and so on. Such issues raise even greater hackles than old-style tariff-reduction talks; they inevitably encroach on areas covered by domestic law.
The drugs don’t work
In both TPP and TTIP, investor-state dispute settlement provisions have provoked particular controversy. These set up a system for foreign investors to sue national governments if they breach standards of fairness. Opponents see them as a way for corporate fat cats to sue elected governments for things they don’t like. Christian Odendahl, an economist at the Centre for European Economic Reform, a think-tank, says that including such a controversial provision in TTIP was probably a mistake; legal systems in America and Europe are developed enough for investors not to need the extra legal certainty.
The short-run trade impact of the collapse of TPP and TTIP would not be huge, because of their focus on rule-setting rather than tariff-scrapping. But it would mean an American retreat from its leadership role in global trade liberalisation. Mr Obama has advertised TPP as essential if America, not China, is to set the “rules of the road” for trade in the 21st century.
A trade agenda led by China would be less ambitious than the American-led one. Hopes for global rules covering trade unions, competition from state-owned enterprises and free movement of data would fade, in favour of tariff reduction. Attention would shift to the Regional Comprehensive Economic Partnership (RCEP), a more traditional deal between the ten members of the Association of South-East Asian Nations and six other countries, including China, India and Japan.
RCEP would, however, harvest much more of global trade’s low-hanging fruit. Its member countries cover 36% of global goods exports in 2015, compared with 28% for the TPP. Tariff walls protecting emerging markets are much higher than those around developed countries—China still has on average 10% tariffs, compared with 5% in Europe and under 4% in America—so the immediate boost to the economy from lowering them would be higher.
As for the WTO, it will for now push “plurilateral” deals of its own, which embrace enough WTO members to be significant but which avoid the quagmire of having to secure the agreement of all its 164 members. It already boasts some successes: in September, for example, China started cutting tariffs on technology goods as part of the plurilateral Information Technology Agreement.
Indeed, the failure of TPP and TTIP could provide an opportunity for the WTO to re-emerge as the main forum for the trade-liberalisation agenda. A return to the ambitious visions of the past, however, is unlikely. Mr Azevedo can imagine the WTO brokering another global trade deal, but only when expectations have been managed down from Doha. Above all, the politics needs to be fixed. Few political leaders around the world have done much to squash the anti-trade bug. To them Mr Azevedo says: “You have to speak up for trade.” But Mr Trump is speaking up for protectionism; and Mrs Clinton would rather change the subject.